CLUBBING OF INCOME AND SET OFF

Generally, an assessee is taxed in

respect of his own income. In some
cases, however, the Income Tax Act
deviates from this principle and the
assessee may be taxed, under Secs.
60 to 64, in respect of income which
legally belongs to some other person.
Provisions
incorporated
in
these
sections deal with cases where
taxpayers make an attempt to reduce
their tax bill by transferring their
assets in favor of their family members

Transfer of income without transfer of

asset When income therefrom is
regarded as that of transferor
Condition
The taxpayer owns an asset
1
[Sec.60]
Condition 2

The ownership of asset is not transferred by him. In other words,

he has retained the ownership of the asset.

Condition 3

The income from the asset is transferred to any person under a

settlement, trust, covenant, agreement or arrangement.

Condition 4

The above transfer may be revocable or may not be revocable.

Condition 5

The above transfer may be effected at any time (may be before

the commencement of the Income Tax Act or after the
commencement of the Act, i.e., before or on after April, 1, 1962)

If the above conditions are satisfied, the

income from the asset would be
taxable in the hands of the transferor.

Revocable transfer of assets When income

therefrom is regarded as that of transferor:
The following conclusions can be drawn:
1. There is an asset which is transferred under a
revocable transfer .
2. Income from the aforesaid asset is taxable in the
hands of transferor.
3. Such income is taxable as and when the power to
revoke arises.
4. The above rule is applicable even if the power to
revoke has not been exercised so far.

When

an

individual

is

assessable

in

respect

of

remuneration of spouse [Sec.64(1)(ii)]

Conditio
n1

The taxpayer is an individual

Condition
2

He/she has a substantial interest in a concern

Condition
3
When

Spouse of the tax payer (i.e., husband/wife of the tax payer) is

an
individual
assessable inconcern.
respect of income from
employed
in theisabove-mentioned

Condition
assetsSpouse
transferred
to
is employed
4

spouse
[Sec.64(1)(iv)]
in
the concern
without any technical or
professional knowledge or experience.

Conditio
n1

The taxpayer is an individual

Condition
2

He/she has transferred an asset (other than a house property)

Condition
3

The asset is transferred to his / her spouse

Condition
4

The transfer may be direct or indirect.

Condition
5

The asset is transferred otherwise than (a) for adequate

consideration, or (b) in connection with an agreement to live
apart.

When clubbing is not applicable On the basis of

judicial pronouncements, Sec.64(1)(iv) is not
applicable in the following cases:
If assets are transferred before marriage;
If assets are transferred for adequate consideration;
If assets are transferred in connection with an
agreement to live apart
If on the date of accrual of income, transferee is not
spouse of the transferor.
If property is acquired by the spouse out of pin
money (i.e., an allowance given to the wife by her
husband for her dress and usual household
expenses).
In the aforesaid five cases, income arising from the
transferred asset cannot be clubbed in the hands of
the transferor.

 When an individual is assessable in

respect
of
income
from
assets
transferred to sons wife [Sec.64(1)(vi)]
The income from the asset is included in the
income of the tax payer who has transferred
the asset (father-in-law/mother-in-law)
When an individual is assessable in respect of income
from assets transferred to a person for the benefit of
spouse [Sec.64(1)(vii)] :
When an individual is assessable in respect of income
from assets transferred to a person for the benefit of
sons wife [Sec.(1)(viii)]
When an individual is assessable in respect of income
of his minor child [64(1A)] - All income which arises or
accrues to the minor child shall be clubbed in the income of
his parent [Sec.64(1A)]

Clubbing in the hands of father or mother: The

income of minor will be included in the income of that
parent whose total income [excluding the income
includible under Sec.64(1A)]is greater.
Where the marriage of the parents does not subsist, it will
be includible in the income of that parent who
maintains the minor child in the relevant previous year.
The minors income, in case both the parents are not
alive, cannot be assessed in the hands of the
grandparents or any other relatives or even in the
hands of minor.
When clubbing is not attracted In the cases given
below, clubbing provisions of Sec. 64(1A) are not
applicable
Income of minor child (from all sources) suffering from
any disability of the nature specified under Section 80U
is not subject to clubbing provision given above.

 Income of minor child on account of any manual

work
Income of minor child on account of any activity
involving application of his skill, talent or specialized
knowledge and experience.
Exemption under Section 10(32) : In case of
income of an individual includes an income of his or
her minor child in terms of Sec.64(1A), such
individual shall be entitled to exemption of Rs. 1,500
in respect of each minor child. Where, however, the
income of any minor so includible is less than Rs.
1,500, the aforesaid exemption shall be restricted to
the income so included in the total income of the
individual.

What is tax implication of conversion of self-acquired

property into joint family property and subsequent
partition [Sec.64(2)]
The following transactions are covered by Sec.64(2)
Case
1

Where an individual (being member of a HUF) converts

(after December 31, 1969) his self-acquired property into
property belonging to the family. It is done by impressing
such property with the character of joint family property or
throwing such property into common stock of the family.

Case When such an individual transfers his self-acquired property,

2
directly
or indirectly,
to the family
otherwise
adequate
Clubbing
before
partition:
Income
from than
the for
converted

consideration.
property
or property transferred for less than adequate
consideration is chargeable to tax in the hands of the
transferor (before partition of the family).
Clubbing after partition: If the property converted or
transferred by an individual is subsequently transferred
amongst the members of the family, the income derived from
such converted property, as is received by the spouse of the
transferor will be included in the income of the transferor.

Other points:

One should also keep in view the

following points:
Income from accretion of property transferred or accumulated
income of such property whether included in the hands of
transferor: